Blue Cross & Blue Shield of Florida Inc. Outlook Revised to Positive; Ratings Affirmed.Business Editors NEW YORK--(BUSINESS WIRE)--Dec. 19, 2003 On Dec. 19, 2003, Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. revised its outlook on Blue Cross and Blue Shield of Florida Blue Cross and Blue Shield of Florida is Florida's largest health insurance provider and plan administrator. The company is a member of Blue Cross and Blue Shield Association. The nonprofit, Jacksonville-based Blue Cross and its subsidiaries serve more than 8. (BCBSF BCBSF Blue Cross/Blue Shield of Florida ) to positive from stable because of the expectation that the improvements in earnings and capitalization achieved during 2002 and the first nine months of 2003 will be sustained in 2004 and beyond. At the same time, Standard & Poor's affirmed its 'A' counterparty credit and financial strength ratings on BCBSF and its 'BBB+' rating on BCBSF's $150 million in surplus notes, which are due in 2011. The ratings reflect the company's very strong capitalization and earnings profile, strong market position, and good liquidity. Outlook BCBSF's enrollment is expected to grow about 2% in 2003 and 5% in 2004. Consolidated GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. is expected to be $375 million-$400 million for 2003 and $300 million-$325 million in 2004. Capital adequacy is expected to improve to more than 200% in 2003 and 2004 as the earnings improvement of the first nine months of 2003 is sustained at a slightly moderated level through 2004. Total debt, including surplus notes, is expected to be $149 million through 2004. Interest coverage is expected to be about 33x in 2003 and 25x in 2004. In the fourth quarter of 2002, the preliminary findings of the Department of Health and Human Services's audit of BCBSF's Medicare administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. recommended that BCBSF reduce its reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. claims. It is expected that the company's resulting liability from the audit will not be material. A final resolution is expected in early 2004, and Standard & Poor's will continue to monitor the situation. Major Rating Factors -- Very strong capitalization. BCBSF's risk-based capital is very strong, with a Standard & Poor's capital adequacy ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. of 170% at year-end 2002, improved from 147% in 2001. In 2001, the plan issued $124 million in surplus notes and an additional $25 million in surplus notes in early 2002, of which $87 million at year-end 2002 was included in total adjusted capital. -- Very strong earnings profile. Earnings adequacy is very strong at 231% for year-end 2002, a dramatic improvement from 130% in 2001 and 122% in 2000. Consolidated pretax GAAP income through the first nine months of 2003 showed $395 million, a continued significant improvement over calendar-year pretax earnings of $284 million in 2002, $109 million in 2001, and $83 million in 2000. Previously, earnings had fallen below historical levels because of less-favorable medical trends on its managed care business, particularly on the Medicare HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, block. Results were also adversely affected by a $14 million nonrecurring one-time charge related to the restructuring of one of the company's provider networks in 2000 and $30 million in additional reserves related to HMO business in 2001. BCBSF's recent success in realizing necessary rate increases while maintaining market share should translate into continued and sustainable improvement in operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: . -- Strong market position. BCBSF is the largest writer of health insurance in Florida. It has more than 3.4 million members as of June 30, 2002, which is 28% of the insured market in the state. Local market expertise and heavy investments in managed care have contributed to strong enrollment growth and have positioned the company to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. changes in health care delivery occurring throughout the state. -- Good liquidity. BCBSF's liquidity is good, with a liquidity ratio of 127% based on Standard & Poor's model. An investment portfolio primarily consisting of highly marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has supports BCBSF's liquidity. -- High levels of competition. Competition remains high in most areas of the state, and heavy competition is expected to continue in the insured group market. Although overall enrollment trends remain positive, the competitive environment limits future pricing flexibility, and BCBSF finds itself balancing the achievement of enrollment targets and earnings targets. -- Less-significant market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" in metropolitan areas. Although the plan's 21% market penetration (defined as the percentage of the total population) leads the market on a Florida-wide basis, market penetration in certain metropolitan areas--including Tampa/St. Petersburg (9%), Miami (7%), and Orlando (8%)--is relatively even with competitors. The company has attained market penetration of 40% outside the metropolitan areas as a result of network depth in all geographic markets. In doing so, BCBSF has built market share in national accounts and the large group market that tend to have employees in many areas of the state.
Ratings List
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Blue Cross and Blue Shield of Florida
Counterparty credit rating A/Positive/-- A/Stable/--
Financial strength rating A/Positive A/Stable
Surplus notes rating BBB+ BBB+
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